2016 (3) TMI 83 - AT - Income Tax

Deduction u/s. 10B - Held that - Assessee is eligible for deduction u/s. 10B, the fact of which was already acknowledged by the CIT(A) in the order for AY 2011-12. However, in AYs. 2007-08 to 2010-11, Ld. CIT(A) in his own way categorized the export of rough granite blocks into dimensional blocks and un-dimensional blocks and restricted the deduction to so called type-3 un-dimensional blocks. Even though Ld. CIT(A) deviated from the issue in analyzing the nature of rough granite blocks exported, however, he made amends in the order for AY. 2011-12 and allowed the deduction in all the granite blocks being exported by Assessee, subject to examination of eligibility of Ongole unit. This unit is also established much earlier and Assessee was allowed deduction on this unit also upto AY. 2006-07. Consequently, the direction of the CIT(A) asking the AO to examine the eligibility of Ongole unit is superfluous. Therefore, allowing Assessee s ground on this issue, we direct the AO to allow the deduction of Ongole unit as claimed by Assessee. To that extent, Assessee s appeals are allowed with reference to allowing of 10B claim in all the impugned AYs. 2007-08 to 2011-12. Addition on Excess Cash - Held that - If there is enough cash balance on the day which can be explained, there cannot be any excess cash, considering that Assessee has no local sales and no need for generating cash outside the Books of Accounts when the incomes are exempt from tax. In view of that with reference to the addition of cash, we set aside the orders of the AO and CIT(A) on the issue and restore the matter to the file of AO for fresh examination of Assessee s contentions and adjudication. Decided in favour of assessee for statistical purposes. Excess Stock in the course of search/survey at Hosur - Held that - At this point of time, it is not possible to examine whether there is an excess stock of granite blocks in the quantity or in the valuation, considering the fact that this value was done with the help of Assessee-company s officials. It is also contended that so called excess valuation is less than 5% of the total stock available with Assessee and AO accepted the closing stock value as the Books of Accounts were not rejected. Even though there is merit in Assessee s contentions, it is difficult to adjudicate whether there is excess stock considering the fact that the sales and stock were reconciled on the date of search and certain amounts were quantified. Even though an estimation of excess stock in the middle of the year, while accepting the Books of Accounts of the year, is not generally permitted by various decisions of the ITAT, since Assessee is eligible for deduction u/s. 10B on the additions/disallowance made on these units, we are of the opinion that the same amount can be allowed for deduction u/s. 10B as the stock pertains to Hosur and Ongole units, which are eligible for deduction u/s. 10B. Assessee s alternate contention is accordingly allowed.

Summary

Issues Involved:
1. Delay in filing the appeal.
2. Eligibility for deduction under Section 10B for export of granite.
3. Addition towards excess cash found during search.
4. Addition towards excess stock found during search.
5. Revenue's appeals against the allowance of Section 10B deduction.

Detailed Analysis:

1. Delay in Filing the Appeal:
The Assessee filed an appeal with a delay of 192 days, attributing the delay to misplaced appeal papers by office staff. The Tribunal, after considering the rival contentions and submissions, condoned the delay, finding reasonable cause for the late filing, and allowed the appeal.

2. Eligibility for Deduction under Section 10B for Export of Granite:
The Assessee, engaged in the export of granites, faced disallowance of Section 10B deduction by the AO in the reassessment proceedings. The ITAT had previously allowed this deduction for earlier years, holding that the Assessee's processing of rough blocks and exporting them qualified for the deduction. The CIT(A) initially restricted the deduction for rough granite blocks without dimensions but later, upon re-examination, allowed the entire deduction, noting that these blocks were processed and dimensions could be found in the packing list. The Tribunal upheld the CIT(A)'s final decision, directing the AO to allow the deduction for all granite blocks exported, including those from the Ongole unit.

3. Addition Towards Excess Cash Found During Search:
During the search, Rs. 23 Lakhs in cash was found and seized. The Assessee explained that this cash was meant for salaries and labour payments, recorded in the Books but not yet disbursed. The AO and CIT(A) rejected this explanation. The Tribunal, noting the lack of examination of the Cash Book and considering that the Assessee's income was exempt under Section 10B, set aside the orders of the AO and CIT(A) on this issue and remanded it back to the AO for fresh examination.

4. Addition Towards Excess Stock Found During Search:
The AO added Rs. 1,24,01,063/- towards excess stock, noting discrepancies in the stock valuation during the search. The Assessee argued that the stock was valued at market price without considering its saleability and that rejects were also considered at market price. The CIT(A) rejected these contentions. The Tribunal, acknowledging the difficulty in adjudicating the exact valuation and considering the Assessee's eligibility for Section 10B deduction, allowed the addition to be considered under Section 10B. The Tribunal also directed that if the AO found any excess cash, the corresponding deduction under Section 10B should be considered.

5. Revenue's Appeals Against the Allowance of Section 10B Deduction:
The Revenue filed appeals against the CIT(A)'s orders allowing the Section 10B deduction. The Tribunal dismissed these appeals, noting that the issue had already been settled in favor of the Assessee in earlier years by the ITAT, and the AO had acknowledged this in the reassessment orders. The Tribunal found no merit in the Revenue's appeals.

Conclusion:
The Tribunal allowed the Assessee's appeals concerning the Section 10B deduction for all relevant years, set aside the additions towards excess cash for fresh examination, and allowed the addition towards excess stock to be considered under Section 10B. The Revenue's appeals were dismissed, affirming the Assessee's entitlement to the Section 10B deduction.